Semiconductor days of inventory (DOI) are forecast to plateau in the third quarter of 2011 at worrisome levels given current conditions and the likelihood that consumer and business spending will be weaker than expected. The market research firm expects the semiconductor industry to begin an inventory correction in late 2011.
"The semiconductor industry entered the third quarter of 2011 with moderately high levels of inventory," said Gerald Van Hoy. "Current levels are too high given the weakening economic sentiment, and the industry must rein in production growth and take action to reduce accumulated inventory. We expect that these actions will occur during the next few quarters with production and sell-through expected to return roughly to balance by the second quarter of 2012."
"The inventory correction comes at a time when ASPs are tracking below trend levels, with overcapacity in the foundry space expected to prolong this weakness," said Peter Middleton. "Excess inventory levels helped buffer the impact of the Japanese earthquake; however, now action should be taken to rationalize stock levels in the face of macroeconomic weakness."
The industry will undergo a moderate inventory correction during the next few quarters, which will lower demand for semiconductor production in the second half of 2011 and early 2012. The proportion of total semiconductor inventory held by OEMs has begun to rise; however, it is still near historic lows, which will help reduce the impact of an order correction on semiconductor vendor sales.
The conclusions are supported by Gartner's GIISST (index of inventory semiconductor supply-chain tracking), which remains at caution levels with DOI at 1.12 in the third quarter of 2011. Within the GIISST, an above DOI level of 1.10 indicates inventories are inflated, and there will likely be downward pressure on ASPs. Below the 0.95 level indicates inventories are low, components may be on allocation and double ordering begins.